SureWest is Probing Loss of $2M

Northern California competitive bundled services provider SureWest Communications Inc. is investigating the loss of $2 million from its accounts for the 2003 fiscal year.

The Roseville, Calif.-company provider said in a statement last week that it began scrutinizing its books on Dec. 17 after the resignation of an employee in the company's corporate finance group. The employee was not identified.

The initial investigation indicated "irregularities … in the company's cash management and investment functions" and violations of the company's investment policies.

SureWest said its audit committee launched a formal internal inquiry and retained independent legal counsel to conduct its audit with the help of forensic accountants.

SureWest is a 90-year-old telephone company serving the Sacramento, Calif., area. It entered the cable business in that market in 2000, when it acquired the physical plant of new-build Western Integrated Networks LLC, which had gone bankrupt.

SureWest is completing the build that WINfirst began. As of the end of 2003, county officials said SureWest was ahead of schedule on the construction of its latest phase, which will extend service to the neighborhoods of Carmichael, Natomas and Arden by the end of 2004.

SureWest competes with Comcast Corp. in the region and will extend its "triple-play" packaging beyond the Sacramento franchise it inherited from WIN. It successfully applied for a franchise last fall in suburban Elk Grove, which could add another 100,000 cable homes to the footprint.

In releasing third-quarter results on Nov. 4, company officials said SureWest was just beginning to see the results of the bundled product strategy. The broadband segment doubled in 2003, to $7.5 million in revenue, compared with $3.7 million in the same quarter in 2003.

SureWest CEO Brian Strom said the accounting investigation, or the possible permanent loss of the $2 million, is not likely to affect the company's product rollout plans for this year. However, "Our highest priority is recovering that money," he said.

The company's statement on the investigation said SureWest has received "a recent representation that it will recover the $2 million," but isn't sure about that representation. If it isn't repaid, SureWest may be able to collect the amount from insurance or through a civil suit, Strom said.

"But should a disaster happen and insurance doesn't provide payment, that still won't slow us down," he said.

SureWest is in the midst of trials of video delivery via asymmetrical digital subscriber line. Strom said the trial is in its fourth month, and is serving about 100 locations.

"It's working; it's not quite ready for primetime, but soon," he added.

The company said the loss appears limited to the 2003 calendar year. The investigation is not concluded, so SureWest is unsure of the impact to its previously filed financial statements.